Whistleblower protections and market disclosures: The TerraCom case unpacked

ASIC's prosecution of TerraCom and certain of its directors and officers has been closely watched, being the first prosecution under the whistleblowing provisions in the Corporations Act 2001 (Cth).

ASIC ultimately settled its whistleblowing case against TerraCom in exchange for TerraCom paying a $7.5 million penalty and $1 million for ASIC's costs, subject to Court approval. ASIC's separate case against the individual directors and officers proceeded, with Justice Jackman delivering judgment on 4 July 2025.

Notably, as part of the settlement of the whistleblower proceedings, ASIC and TerraCom agreed a Statement of Agreed Facts and Admissions, which Justice Jackman did not read in court in the proceedings against the individual directors and officers at the urging of the directors and officers. Given this, the strength of ASIC's case as against TerraCom is currently unclear, but the penalty agreed is significant and highlights the potential consequences of failing to protect whistleblowers in line with statutory obligations.

Background to the TerraCom case

ASIC alleged that TerraCom and certain of its directors and officers breached their duties and/or made false and misleading market disclosures in response to whistleblower allegations raised by a former employee that TerraCom had manipulated coal quality certificates to inflate export values. In response to the whistleblower's allegations, TerraCom issued ASX announcements and open letters in the Australian Financial Review and The Australian which included references to findings of an investigation by PwC, which had been commissioned to address the allegations.

ASIC alleged that individual TerraCom directors and officers contravened:

• section 1309(2) of the Corporations Act by authorising or permitting the giving of information to the ASX in the form of market announcements relating to certain allegations made by the whistleblower, and the processes for certification and sale of TerraCom’s coal, that were false or misleading; and/or

• section 180 of the Corporations Act by failing to act with the requisite degree of care and diligence in the discharge of their duties as directors and officers in the circumstances of TerraCom’s investigation of the allegations made by the whistleblower, and the associated release or publication of the allegedly misleading announcements.

Representations to the market and section 1309

An officer may commit a contravention of section 1309(2) the Corporations Act where they make available or give information to a financial market that is false or misleading, including by way of omission, without having taken reasonable steps, including by making all reasonable inquiries, to ensure that the information was not false or misleading in a particular matter, including by way of omission.

ASIC alleged that the TerraCom directors contravened this section by making the ASX announcements which contained seven allegedly false or misleading representations, comprising of:

• four “Exoneration Representations”; and

• three “No Customer Complaint Representations".

Importantly, ASIC's allegation was not that the statements in the ASX announcements were themselves false or misleading, but rather ASIC constructed from the statements in the ASX announcements representations which it said could be inferred, which it alleged to be false or misleading. In pleading its case in this manner, ASIC relied on a previous case (Australian Securities and Investments Commission v Holista Colltech Ltd [2024] FCA 244), where the Court accepted an admission of contravention of section 1309(2) of the Corporations Act expressed in terms of information containing particular representations. It is important to note however that Holista was not contested and therefore has less precedential value than Terracom. In any event, each case will turn on its own facts.

The Court found that ASIC’s approach of constructing representations from the ASX announcements, rather than alleging that the statements themselves were false or misleading, carried the risk of exaggeration or embellishment.

Justice Jackman cautioned:

“An approach which is more faithful to the language of s 1309(2) would be to set out the information which is alleged to have been provided, noting where the information is expressly stated and, if necessary, where the information is said to have been implied in those express statements, and then to allege directly that that information was false or misleading.”

Justice Jackman ultimately found that only two of the seven alleged representations were made and that neither was false or misleading.

ASIC’s approach to disclosure is notably strict and poses particular challenges in the drafting and approval of ASX announcements. Specifically, ASIC appears to require not only that statements are not false or misleading when interpreted according to their ordinary meaning, but also that they do not give rise to false or misleading inferences. This is especially relevant in situations where a statement may amount to a “half-truth” or be misleading by omission. As a result, greater diligence and scrutiny are required by those responsible for preparing and approving announcements, to ensure that the disclosure is accurate, complete, and not capable of being misinterpreted.

Those involved in the preparation of ASX announcements should not assume that this decision permits a lower level of scrutiny over the content of public announcements. For example, the TerraCom decision is to be compared to the recent decision in ASIC v Noumi Limited & Ors, also determined by Justice Jackman, where the former CFO was banned from managing corporations for four years and fined $100,000 for breaches of sections 180(1) and 1309(2) of the Corporations Act. The TerraCom and Noumi decisions confirm that each case will turn on its own facts. Taking appropriate steps to investigate claims and obtaining advice to determine compliance, and appropriate reliance on such advice, will assist parties in demonstrating conduct was not in contravention of section 1309.

Directors’ duties and the scope of section 180

ASIC’s case against TerraCom’s directors and officers under section 180(1) of the Corporations Act was based on two key allegations:

• the directors and officers failed to take reasonable steps to ensure that the particular ASX announcements were not false or misleading, including by way of omission; and

• they failed to make further inquiries in light of a report by PwC commissioned by those who were investigating the whistleblower investigations and subsequent announcements by a third party participating in the certification process of TerraCom’s coal.

Justice Jackman rejected both aspects of ASIC’s case, providing important guidance on the scope of directors’ duties in the context of whistleblower investigations and corporate disclosures.

Reliance on delegation and advice

ASIC placed particular emphasis on the fact that TerraCom's non-executive chairman, Mr King, did not review the PwC investigation report into the whistleblower allegations until shortly before the hearing commenced. Despite this, the Court found that Mr King was entitled to rely on the assurances provided by the independent directors, external advisers, and auditors.

Mr Forrest, an independent director of TerraCom, was responsible for overseeing the PwC investigation into the whistleblower allegations. He provided regular updates on the progress of the investigation, and also a number of assurances to Mr King, including that:

• PwC had not found anything of substance to indicate wrongdoing by TerraCom or its employees; and

• TerraCom and the executives were essentially exonerated in the PwC Report.

In addition, Mr King attended a meeting with TerraCom's auditors, Ernst & Young. EY then subsequently attended a separate meeting with TerraCom's legal advisers to review the PwC Report and returned to confirm that it had no concerns with its contents and would issue a clean half-yearly audit report, which it did the following day.

Justice Jackman held that Mr King’s reliance on these assurances and on EY's clean audit report were reasonable and consistent with his duties under section 180(1) of the Corporations Act, despite not having read the PwC Report himself.

The Court accepted that Mr King's reliance was justified because the TerraCom board had implemented a proper process, with oversight undertaken by individuals who were not personally implicated. Appropriate external reviews were conducted and there was no conflicting evidence that should have put Mr King on notice of any matters which should have prompted further inquiry.

This decision reinforces that directors are not necessarily required to personally review investigation reports and independently verify the outcome of investigations, provided they have taken reasonable steps to ensure that appropriate robust processes are in place and have relied in good faith on appropriate professional advice.

Conflict of interest and fiduciary obligations

Where allegations were raised by the whistleblower against TerraCom’s CEO, Mr McCarthy, and CFO, Mr Boom, Justice Jackman described ASIC's position that those individuals should have made further inquiries into the allegations or participated in the conduct of the investigation as “extraordinary.” He emphasised that it would have been improper for individual respondents to investigate matters that could implicate them personally, as this would create a conflict of interest and breach their fiduciary duties to the company.

Justice Jackman stated:

“They were plainly in a position of conflict, with a real and sensible personal interest in the investigation or inquiries.”

This aspect of the judgment provides a clear boundary for directors and officers in managing whistleblower investigations that may concern alleged conduct on their part. It underscores the importance of ensuring that such investigations are overseen by individuals who are impartial to the allegations raised and that inquiries are properly made by those individuals.

ASX Listing Rule 15.5(c): not just a formality

One of the key issues in this case was the role of TerraCom’s Disclosure Committee, which authorised the ASX announcements at the centre of ASIC’s claims. Under ASX Listing Rule 15.5(c), companies are required to include a statement in their ASX announcements advising, for release to the market, by whom the announcement has been approved, such as the company’s board, a disclosure committee, or an individual such as the CEO. Justice Jackman’s judgment highlights that this requirement is far from a mere formality.

The case shows how liability can potentially be sheeted home to those who are stated to have authorised the release of an ASX announcement.

This underscores the importance of the ASX Listing Rule 15.5(c) statement and the potential for those approving a particular ASX announcement to be held personally liable for false or misleading disclosures. Whether or not they are serving on formal disclosure committees, directors and officers involved in the preparation and approval of market announcements must exercise a high degree of care and diligence. They must ensure that each announcement has been properly verified and "diligenced" particularly in light of ASIC's approach in this case, where breaches of section 1309(2) of the Corporations Act were alleged based on a construction of false or misleading representations inferred from information given.

Whistleblower protections and the cost of non-compliance

While the judgment primarily addressed ASIC’s claims under sections 1309(2) and 180(1) of the Corporations Act, with ASIC's claims under the whistleblowing provisions in Part 9.4AAA of the Corporations Act not ultimately ventilated, the decision provides important takeaways in how directors and officers manage whistleblower allegations and investigations.

First, the $7.5 million penalty agreed between ASIC and TerraCom for breaching whistleblower protections under section 1317AC is significant. This penalty, subject to court approval, follows ASIC's first prosecution in the whistleblowing space and sets a high benchmark for breaches of whistleblower protections.

Second, while the case before Justice Jackman against the individual defendants did not consider the whistleblowing protections under the Corporations Act, he made a number of observations about the extent to which directors and officers should respond to whistleblowing allegations and understand the findings of whistleblowing investigations, as set out above.

Specifically, directors and officers can rely on information provided to them by others regarding the outcome and findings of an investigation into allegations raised by a whistleblower where the sources of information are appropriate and reliable. For example, Justice Jackman accepted that it was appropriate for Mr King in this case to rely upon information provided to him by Mr Forrest who was overseeing the investigation (including in circumstances where he presumed Mr Forrest had access to legal advice) and TerraCom's auditors, who each had access to the investigation report.

Further, a director is not expected to make inquiries where doing so would require them to take steps that are not considered reasonable. For example, Justice Jackman accepted:

• Mr McCarthy and Mr Boom were not expected to make inquiries into matters that had the potential to concern their own conduct as directors in light of their fiduciary obligations; and

• Mr Forrest (the independent director responsible for the investigation) was never told by PwC or TerraCom's legal advisors that there was information omitted that was material or critical to PwC's investigation, nor did anyone tell him that there were any persons who could have provided information that was material or critical to the investigation but were not made available to PwC, that would otherwise necessitate further inquiries; and

• where a person with information does not wish to participate in an investigation, it would not be expected that directors and officers would seek to make further inquiries with that individual.